Interactive Brokers LLC has agreed to pay a fine of $125,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).

Between January 2022 and October 2024, Interactive Brokers failed to establish and maintain a supervisory system, including written procedures, reasonably designed to achieve compliance with the firm’s obligation to provide customers time of trade disclosures regarding the fact that certain municipal bonds traded at a market discount and that all or a portion of the investor’s investment return represented by accretion of the market discount might be taxable as ordinary income.

Although the firm used a third-party vendor to provide time of trade disclosures, the firm’s written procedures did not specify how the firm would supervise the third-party vendor, and the firm did not have any process to verify that purchasers of bonds with non-de minimis market discounts received adequate disclosures.

During the relevant period, Interactive Brokers failed to disclose non-de minimis market discounts in 1,918 transactions involving 130 customers, with a total principal value of approximately $40 million.

The firm subsequently provided the required disclosures to impacted firm customers, as well as an offer to compensate the customers for demonstrated adverse tax consequences resulting from the belated disclosures.

In October 2024, the firm and its third-party vendor implemented an automated notification that requires customers to acknowledge, at the time of trade, the potential tax consequences of their transaction when purchasing bonds trading at non-de minimis market discounts. Customers must acknowledge the disclosure before completing the transaction.

By failing to establish and maintain a supervisory system, including written procedures, reasonably designed to achieve compliance with the firm’s time of trade disclosure obligations, and by failing to disclose certain material market discounts, Interactive Brokers violated MSRB Rules G-27 and G-47.

On top of the $125,000 fine, the firm has agreed to a censure.